The New Rules of Know Your Business

  • Barley Laing, the UK Managing Director at Melissa

  • 14.09.2023 11:15 am
  • #banking

With most banking services now conveniently available online, this accessibility comes with some risk, with customer fraud - whether by an individual or a business - on the increase.

This is why know your business (KYB), along with Know Your Customer (KYC) checks, must be performed in tandem to combat fraudulent activity, as well as to ensure compliance with existing KYC and Anti-Money Laundering (AML) regulations.

Unfortunately, KYB has historically been viewed by those in financial services as a necessary regulatory ‘add-on’ to their counter-fraud activity, with KYC activity usually given more attention.

As a result, many give little thought to KYB as long as the compliance box is ticked. This is a mistake, because they may be investing the bare minimum in KYB which might be enough for the regulators, but not for their needs, or possibly investing too much beyond what they need and regulations require. Also, purchasing KYB as an ‘add-on’ is often not a financially beneficial or best practice way to deliver KYB with the growth in full-service identity verification platforms.

What is important is that the KYB screening that’s undertaken enables financial institutions to fully comprehend the risks posed by new and existing business customers and suppliers. This is particularly beneficial because fraud is often committed by shell companies or organisational structures that just don’t exist in reality, so KYB checks can greatly lessen the opportunity for that type of fraud to happen. Doing so will also help to prevent financial crime, such as money laundering and terror financing, which could result in substantial reputational damage.

How to implement effective KYB screening

To successfully undertake KYB screening you first need to understand the difference between KYC and KYB checks. With KYB it’s not simply a case of verifying a name, address, or date of birth, for example, as is done for an individual, although this data is obviously important for both KYC and KYB checks. For a reliable and cost-effective approach to KYB screening, it’s advisable to cross-check a company name, address, business registration number, and operational status. While it’s possible to undertake a more in-depth KYB screening process, which includes identifying any person with significant control – the beneficial owners, the company’s annual returns, or financial statements – the benefits must be weighed against the often significant cost of doing so. This makes spending time reviewing what KYB checks are currently delivering for your organisation very important - in particular in making sure that you have the appropriate level of screening to protect your organisation while ensuring compliance with the regulations.

eIDV platform with integrated KYB and KYC functionality

To implement effective KYB and KYC checks globally, it’s preferable to source a comprehensive electronic identity verification (eIDV) platform that provides both. With the growth in fraud such services are becoming increasingly popular. Available as a software-as-a-service (SaaS) they are easy to deploy, scalable, and support real-time cross-checks against an individual’s contact data and company data.

The eIDV platform sourced must have access to reputable global data streams, such as government agency, credit agency and utility records, to match the name, address, date of birth, email, or phone number, along with recognised sources of business data, such as from a business registry or regulator, like Companies House. The service should also offer mortality screening checks to effectively confirm the ID of an individual and be able to highlight any errors in the data, such as a typo in the address, which can easily be rectified.

Ideally, the service will provide access to worldwide sanctions and politically exposed person (PEP) data, as well as adverse media checks of both individuals and businesses to provide a full ID verification service. This way, tight budgets can be protected against scammers, while also supporting the best practice KYB and KYC. Furthermore, accessing all this in one place provides an economy of scale – rather than buying everything separately, and potentially from different suppliers

With the increase in fraud, those in financial services need to evolve their approach to KYB, which means having a greater understanding of the KYB checks being delivered by their organisation, and ensuring these are appropriate for their and the regulators needs. They should also acknowledge that there are significant benefits to delivering KYB, along with KYC, using a full-service eIDV platform.

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